SEC Brings Three Actions Involving Five Former Stanford Employees
Robert Allen Stanford, the convicted architect of an $8 billion Ponzi scheme centered around Stanford International Bank or SIB, is serving a 110 year prison sentence. Now the Commission has brought three administrative proceedings naming as Respondents five of his lieutenants.
One proceeding names as a Respondent Jay T. Comeaux, the president of Stanford Group Company or SGC (a registered broker dealer and investment adviser) from January 1996 to March 2005 and its executive director from March 2005 to February 2009. In the Matter of Jay T. Comeaux, Adm. Proc. File No. 3-15002 (Aug. 31, 2012). A second names as Respondents: Daniel Bogar, former President of SGC from March 2005 through 2009 who had previously overseen the merchant banking group from 2000 through 2005; Bernerd E. Young, COO of SGC from 20006 through 2009; and Jason Green who held several positions with SGC including senior v.p., financial planning from 1996 – 20001, senior managing director from April 2001 to January 2007 and president, Private Client Group at SGC from January 2007 through February 2009. In the Matter of Daniel Bogar, Adm. Proc. File No. 3-15003 (Aug. 31, 2012). A third proceeding named as a Respondent Jason A. D’Amato who held various positions with SGC and Stanford Capital Management, LLC or SCM beginning May 2003 and continuing through February 2009 including one in which he managed a proprietary mutual fund wrap program known as Stanford Allocation Strategies or SAS. In the Matter of Jason A. D/Amato, Adm. Proc. File No. 3-15004 (Aug. 31, 2012).
Essentially, each of the proceedings alleges that the Respondent or Respondents contributed to the financial success of the Stanford fraud by participating in or actually selling CDs for SIB or mutual funds despite being aware of information demonstrating that the representations made to investors were false. The Comeaux and Boger proceedings center on a core of similar allegations focused on the sale of certificates of deposit or CDs issued by SID beginning as early as 1998. At that time those instruments were marketed to U.S. investors through a private placement exemption from the registration provisions of the federal securities laws. The revenues from these sales represented a substantial potion of SGC’s overall revenue.
Critical to the sale of the CDs, an a part of the training furnished to those who were involved with the sales such as Mr. Comeaux, were representations regarding the investments of SIB and its insurance program. SIB was a private Antigua bank solely owned by Mr. Stanford which claimed to have $7.2 billion in deposits and $8 billion in assets. It sold CDs based on claims that they were backed by an investment portfolio of highly liquid securities and an insurance program which was better than that of the FDIC. Many of those CDs were sold through SGC. James Davis, the CFO of Stanford Financial Group, pleaded guilty and acknowledged that about 80% of SIB’s investment portfolio was illiquid investments, grossly overvalued real and personal property acquired in related party transactions and unsecured personal loans to Mr. Stanford which were disguised as investments.
Mr. Comeaux knew, that SIB would not disclose the details of its investment holdings to him or other SGC executives or representatives. Despite this fact he and others used marketing materials which trumpeted the diversified holdings of the bank in marketable securities. Those materials also touted the “comprehensive insurance program” that backed the CDs, a representation Mr. Comeaux knew was false. The Order alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2).
Messrs. Bogar, Young and Green took several trips to Antigua to conduct due diligence on SIB. During the trips they investigated SIB and its CD program, reviewing reports, touring the facilities and meeting with officials. As a result of their investigations they learned: that SGC refused to permit a review of its investment portfolio; that there was no private insurance; and that SGC financial advisers had long-standing concerns about the auditors for SIB. Messrs Bogar and Young also knew, or were reckless in not knowing, of other misstatements and omissions regarding SIB.
Nevertheless, Respondents Bogar and Young reviewed and approved offering documents and trading materials used by SGC to market its CDs to U.S. investors which contained representations regarding the SIB investment portfolio and insurance program. Respondent Green marketed and sold millions of dollars of SIB CDs using the misleading documents and, in addition, made other oral misrepresentations. The Order alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b) and 15(c)(1) and Advisers Act Sections 206(1) and (2).
The D’Amato proceeding is based on the sale of interests in the Stanford Allocation Strategies proprietary mutual fund wrap program for SCM and SGC rather than CDs for SID. The approach and results were the same however.
In 2000 SGC began offering a mutual fund allocation program through its investment advisory group. Mr. D’Amato began as an assistant analyst with SGC in May 2003. As part of his duties he calculated the returns of the product in 2004 compared to the S&P 500. The backtested models consistently outperformed the S&P 500 by a significant margin.
By 2006 clients complained that their returns were nothing close to those recorded in the materials. While the performance data for 2000 through 2004 could not be verified and in fact SGC could not identify any records substantiating performance for that period, the claimed results were included in new pitch books with a disclaimer for that period. The material for the unverified period was set along side of that for 2005 and later years that was in fact verified. This was misleading.
Mr. D’Amato knew that the 2000 to 2004 data was calculated differently than information for later years according to the Order and that labeling the composite data as “historical performance” in materials was misleading. He also knew that the claimed returns for 2000 to 2004 were not realistic. He failed to disclose these facts to clients. He also misrepresented his credentials to clients, falsely claiming that he was a Chartered Financial Analyst when in fact he was not. The Order alleges violations of Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2) and Section 207.
Only Mr. Comeaux settled. He consented to the entry of a cease and desist order based on the Sections cited in the Order and to the entry of an order barring him from the securities business and participating in a penny stock offering. Issues regarding disgorgement and civil penalties will be resolved in a future proceeding. At that time the extent to which his assets are subject to the control of the court-appointed receiver in the Commission’s enforcement action against Robert Allen Stanford will be credited against any monetary sanctions. The other to proceedings will be scheduled for hearing.